Wednesday, December 25, 2013

What to do when Obamacare unravels

The unraveling of the Affordable Care Act presents a historic opportunity for change. Its proponents call it "settled law," but as Prohibition taught us, not even a constitutional amendment is settled law—if it is dysfunctional enough, and if Americans can see a clear alternative.

Source: David Gothard, Wall Street Journal

This fall's website fiasco and policy cancellations are only the beginning. Next spring the individual mandate is likely to unravel when we see how sick the people are who signed up on exchanges, and if our government really is going to penalize voters for not buying health insurance. The employer mandate and "accountable care organizations" will take their turns in the news. There will be scandals. There will be fraud. This will go on for years.

Yet opponents should not sit back and revel in dysfunction. The Affordable Care Act was enacted in response to genuine problems. Without a clear alternative, we will simply patch more, subsidize more, and ignore frauds and scandals, as we do in Medicare and other programs.

There is an alternative. A much freer market in health care and health insurance can work, can deliver high quality, technically innovative care at much lower cost, and solve the pathologies of the pre-existing system.

The U.S. health-care market is dysfunctional. Obscure prices and $500 Band-Aids are legendary. The reason is simple: Health care and health insurance are strongly protected from competition. There are explicit barriers to entry, for example the laws in many states that require a "certificate of need" before one can build a new hospital. Regulatory compliance costs, approvals, nonprofit status, restrictions on foreign doctors and nurses, limits on medical residencies, and many more barriers keep prices up and competitors out. Hospitals whose main clients are uncompetitive insurers and the government cannot innovate and provide efficient cash service.

We need to permit the Southwest Airlines, Wal-Mart, Amazon.com and Apples of the world to bring to health care the same dramatic improvements in price, quality, variety, technology and efficiency that they brought to air travel, retail and electronics. We'll know we are there when prices are on hospital websites, cash customers get discounts, and new hospitals and insurers swamp your inbox with attractive offers and great service.

The Affordable Care Act bets instead that more regulation, price controls, effectiveness panels, and "accountable care" organizations will force efficiency, innovation, quality and service from the top down. Has this ever worked? Did we get smartphones by government pressure on the 1960s AT&T phone monopoly? Did effectiveness panels force United Airlines and American Airlines to cut costs, and push TWA and Pan Am out of business? Did the post office invent FedEx, UPS and email? How about public schools or the last 20 or more health-care "cost control" ideas?

Only deregulation can unleash competition. And only disruptive competition, where new businesses drive out old ones, will bring efficiency, lower costs and innovation.

Health insurance should be individual, portable across jobs, states and providers; lifelong and guaranteed-renewable, meaning you have the right to continue with no unexpected increase in premiums if you get sick. Insurance should protect wealth against large, unforeseen, necessary expenses, rather than be a wildly inefficient payment plan for routine expenses.

People want to buy this insurance, and companies want to sell it. It would be far cheaper, and would solve the pre-existing conditions problem. We do not have such health insurance only because it was regulated out of existence. Businesses cannot establish or contribute to portable individual policies, or employees would have to pay taxes. So businesses only offer group plans. Knowing they will abandon individual insurance when they get a job, and without cross-state portability, there is little reason for young people to invest in lifelong, portable health insurance. Mandated coverage, pressure against full risk rating, and a dysfunctional cash market did the rest.

Rather than a mandate for employer-based groups, we should transition to fully individual-based health insurance. Allow national individual insurance offered and sold to anyone, anywhere, without the tangled mess of state mandates and regulations. Allow employers to contribute to individual insurance at least on an even basis with group plans. Current group plans can convert to individual plans, at once or as people leave. Since all members in a group convert, there is no adverse selection of sicker people.

ObamaCare defenders say we must suffer the dysfunction and patch the law, because there is no alternative. They are wrong. On Nov. 2, for example, New York Times NYT columnist Nicholas Kristof wrote movingly about his friend who lost employer-based insurance and died of colon cancer. Mr. Kristof concluded, "This is why we need Obamacare." No, this is why we need individual, portable, guaranteed-renewable, inexpensive, catastrophic-coverage insurance.

On Nov. 15, MIT's Jonathan Gruber, an ObamaCare architect, argued on Realclearpolitics that "we currently have a highly discriminatory system where if you're sick, if you've been sick or you're going to get sick, you cannot get health insurance." We do. He concluded that the Affordable Care Act is "the only way to end that discriminatory system." It is not.

On Dec. 3, President Obama himself said that "the only alternative that Obamacare's critics have, is, well, let's just go back to the status quo." Not so.

What about the homeless guy who has a heart attack? Yes, there must be private and government-provided charity care for the very poor. What if people don't get enough checkups? Send them vouchers. To solve these problems we do not need a federal takeover of health care and insurance for you, me, and every American.

No other country has a free health market, you may object. The rest of the world is closer to single payer, and spends less.

Sure. We can have a single government-run airline too. We can ban FedEx and UPS, and have a single-payer post office. We can have government-run telephones and TV. Thirty years ago every other country had all of these, and worthies said that markets couldn't work for travel, package delivery, the "natural monopoly" of telephones and TV. Until we tried it. That the rest of the world spends less just shows how dysfunctional our current system is, not how a free market would work.

While economically straightforward, liberalization is always politically hard. Innovation and cost reduction require new businesses to displace familiar, well-connected incumbents. Protected businesses spawn "good jobs" for protected workers, dues for their unions, easy lives for their managers, political support for their regulators and politicians, and cushy jobs for health-policy wonks. Protection from competition allows private insurance to cross-subsidize Medicare, Medicaid, and emergency rooms.

But it can happen. The first step is, the American public must understand that there is an alternative. Stand up and demand it.

Comments
Thanks as usual to my superb editor at the WSJ, Howard Dickman.

This is the Oped version of my essay, After the ACA; go there for more details. In case I have to hit you over the head with the point, we need to focus on the supply of health care as well as health insurance. For guaranteed renewable insurance and solving preexisting conditions read "Health Status Insurance" etc. here.

The comments on Hope for Healthcare and some followup correspondence paint an intriguing picture. Take a look at goodrx.com, www.oration.com and also at the health technology review in last Saturday's WSJ, "5 high tech fixes." The internet undermined un-competitive behavior and non-transparent prices in cars, electronics, life insurance, and many other fields. Maybe, just maybe, it can undermine the hospital-insurer-government complex too. I ran out of space to write about that, but there is hope.

I was thinking a little bit about the exchanges and the latest latest deadline chaos, and the following occurred to me: They are restructuring an entire market, basically substituting website exchanges for insurance brokers and company marketing. They are redefining an entire product space--individual health insurance. And then announcing that an entire country has to sign up in about a month.

Think how any other new product or marketplace is introduced, especially a complex one like health insurance. There is a whole spread of word of mouth, magazine and internet reviews, company marketing efforts, friends and relatives pass on what they learned, which plans are good, which are bad, which networks have good doctors in your area, and so on. They ignored this entire new-product process. And then wonder that it's not working so great.

Well I guess it's appropriate for the season. Augustus Obama decreed that each must be registered with healthcare.gov. So Joseph and Mary, lacking a computer, went to a public library to register. But she was with child, and the website crashed while Joseph was entering their income history, so there among the books a child was born...

I personally think that the the supply side issues of health-care, which you raise, dominate the insurance issues. I also agree that an op-ed cannot respond to every "what if" but the adverse selection problem is no longer a "what if". Unless you want to preach to the converted the major critiques of free market efficiency be addressed seriously.

Your response in "After the ACA" is that adverse selection is "a nice story, but does not quantitatively account for the real world.".

This position may have been reasonable prior to Hendren's 2013 ECMA paper, but in light of his research this position no longer holds up. Using data on long-term care, disability, and life insurance he shows that many markets have collapsed due to the private information held by customers.

If I am not mistaken, asymmetric info does not matter as much when agents purchase the right to buy insurance (Prof. Cochrane's suggestion) when they are young healthy. Actually, the Slate article talking about Hendren's paper specifically mentions this idea of Prof. Cochrane. Thus, for Cochrane, asymmetric information/preexisting conditions is not an issue.

Here is the slate article:http://www.slate.com/articles/business/the_dismal_science/2012/03/pre_existing_conditions_the_real_reason_insurers_won_t_cover_people_who_are_already_sick_.2.html

And, the point I should have started with... The thousands of pages of ACA, the tens of thousands of pages of subsidiary regulations, along with the thousands of pre-exisiting federal, state, and local regulations, are hardly a minimally crafted response to the problems of true asymmetric information (you know more about your health than your doctor and insurance company, armed with your entire history and all the tests they want to run).

I was not commenting on whether ACA was optimal. The ACA is a shambling chimera whose construction is due to the political process of its creation. I don't know if it is worse or better than the current system, or if it will fail, but that issue is somewhat orthogonal to the point I raised which was one regarding your own proposal. My query was regarding your own set of proposals and the issue of adverse selection. Consequently, the point you should have started with is indeed the one you started with.

But in essence, your response is that you have a strong prior that it is not an issue and that the evidence presented in Hendren 2013 is not sufficient to shift that prior significantly. Not a very satisfactory response but maybe that is all that is possible when regarding an issue over which there is so little evidence.

A final point, somewhat orthogonal to the issue of adverse selection, is that many/most of the proposals for reducing the cost of providing health care are compatible with an insurance mandate. The argument for these does not depend on the success or failure of the ACA and they should be pushed for irrespective of the type of health care system in place. As you said "we need to focus on the supply of health care as well as health insurance. ".

All this adverse selection discussion is interesting, but I wonder if it is moot. In the end, the system can have many elements, including one where adverse selection is part of the makeup. Adverse selection doesn't add to health care costs, so why worry about it? If it continues, insurance costs will adjust somewhat, but if the story to date is correct, that most of our costs are for the end of life, then the additional premiums should be tolerable. We're already covering the bulk of the people with chronic problems (the remainder being pushed out on an individual policy basis in the past), so we're not adding costs in that case, either. A better case can be made that we are looking at the wrong pools than that adverse selection is a lurking menace to the success of ACA or any other system.

Even so, it seems to me that we could cause people to join the pool by establishing the cost of their delay. That could be done with a policy rider that gets more expensive the longer you avoid the pool. The rider (or separate one) could be used to help level the cost of young/old insurance, as well. Think of it as a pay me now or pay me later kind of system, where pay me now is ultimately cheaper.

Yes, the supply-side which is non-competitive and mostly delivered by non-profits [being a non-profit means efficiency is not your number one goal, unlike for-profit] and new entrants are faced with enormous barriers to entry mostly do to the technocracy and the usual regulatory capture.

The supply-side story of health-care is not widely disseminated information and is in dire need of coming out of the shadows and exposed for what it really is: Ma Bell.

Further, Wal-Mart and Southwestern can't emerge as it is not a spontaneous/emergent order system; it's a technocratic wonderland.

Disclaimer: This was written under the influence of tryptophan from too much turkey. It may ramble.

I keep getting hung up on what appear to be internal contradictions in what we're trying to accomplish. Universal health care is ultimately a problem of socialism and a conflation of desires with rights.

We have proposed a "right" that can only be extended to all members of society by infringing the rights of others. As Jefferson observed, your right to worship neither picks my pocket nor breaks my leg. Your right to health care, however, may come out of other people's wealth. What kind of a "right" is it that requires expropriating the ownership of the fruits of another's labor? It's all well and good to talk about SWA but you'd be hard-pressed to get consensus that everyone has a "right" to fly Southwest if they can't afford it. Especially from Southwest.

Everyone has a "right" to health care. Everyone "should" be able to get necessary health care. No one has a "right" to any product they need from Amazon even if they can't afford it. No one feels people "should" be able to send a FedEx package if they don't have the money. And no one forces Amazon or FedEx to provide these goods and services. Try to start a petition for a tax to support the "right" to send a FedEx package and see what happens.

These are the kinds of problems you get into when "shoulds" become "rights", and it's why you're unlikely to see the kind of free market in health care that you see elsewhere. As long as we embrace this basic re-interpretation of "rights" we are stuck with a hybrid system that is neither fish nor fowl. This is not going away. Few people are such die-hard libertarians that we want to see poor people die in the street.

As long as we agree to this faulty construct where good intentions can be made into rights we can't escape the socialist dilemma. We believe that free markets produce the best efficiencies and therefore find ourselves in the predicament of how to apply capitalist methods to achieve socialist goals.

I think the reality of the situation is that we will have to compromise on a system that has an insurance base with a generous layer of free market on top. This can only be accomplished by dismantling much of the opaque and unbalanced financial and legal structure that underpins the massive profits to be made in insurance, hospitals, and drug manufacturing. The American people don't understand this at all. I've been in health care for over three decades and helped found a physician-owned hospital and I barely understand it all. Dr Cochrane recently said he was unaware of the repricing game. He do we unravel a system we don't even comprehend? The ideas are good but the implementation is going to be a bitch. Remember who owns the politicians.

The other alternatives are single payer or a massive deflation of 15% of the economy so a dialysis session costs the same as a Happy Meal so everyone can pay cash.

@JB McMunnWe have proposed a "right" that can only be extended to all members of society by infringing the rights of others. As Jefferson observed, your right to worship neither picks my pocket nor breaks my leg. Your right to health care, however, may come out of other people's wealth. What kind of a "right" is it that requires expropriating the ownership of the fruits of another's labor?

If you have taxes that pay for the use of police and court systems to protect your self-perceived property rights, then technically you are expropriating the fruits of my labor to pay for them too.

There's no arbitrary dividing line between when something becomes "expropriation" and when it is not when it comes to government, property rights, taxation, and social services. It's all expropriation, and your very property rights represent a denial of my own freedom to act and utilize certain things unless we voluntarily agreed to respect each other's interests and property in the Coase Bargaining sense.

To Brett:No. From its very beginning, it was implied in the constitution of the US that the police, the courts and the army would be provided by the federal government. The constitution assumes that such services can only be provided in that way. You may not agree with that premise, but that was assumed since the very beginning of the country, that in the geographical area of the USA the police, the courts and the army would be provided by the government and funded collectively.As for your second point, no again. The constitution of the USA assumes that every person has the right to his own life. It is a corollary that if you own your life, you own the product of your work, that is, of any property you acquire. This is necessary since in a material world people require property to live. To deny the right to own property is to deny the right to live.

Interesting op-ed. Not to nit-pick, but 2 aspects you may not have thought of:

1. large employers self insure, although use insurance companies (Aetna, blue cross) to provide customer service only. This is much cheaper than paying for actual insurance... a blue cross product manager friend told me this option costs only $50/mo per employee and the insurers make no money. Wouldn't large employers prefer to continue this option and wouldn't it make more sense? How would this fit in the scheme of only individual policies?

2. it appears your scheme includes medical underwriting, albeit with guaranteed renewability "with no undue price increase" because of a person's health status as a mechanism to prevent discrimination by health status. While not explicit, discrimination is implicit because for every year that a person continues to renew, there's an increased chance they will have become sick and acquired an expensive condition. If they remain healthy, then other insurance companies will compete for their business at attractive prices but these deals won't be available to a person who sticks with the same insurance company (assuming it is still in business). Once they become sick, they will be trapped with that insurance company and have no other options. Every year they stay with an insurer, they will age into a class of customer more likely to have a costly condition and the price will go up accordingly, even if they aren't sick.

Finally, the ACA is built as a modest change upon our existing employer-based insurance model because the politics of major change is unacceptable. In fact, only 5% of the under-65 population has individual coverage so changes are only really apparent to this small group of people while in your scheme there's be changes to the 80% of under 65's with employer-based coverage. Good luck!

"the politics of major change is unacceptable" - to the parties that wrote the law, i.e., the insurance companies, hospitals, and Pharma.

Another advantage of self-insuring is that ERISA plans are not subject to state law. If you want to fight over a claim you have to go to federal court. There is no simple and free appeal to the state insurance commissioner.

Administering a self-funded plan is all gravy. The insurance company takes in no premiums but also assumes no risk.

Guaranteed renewability without any consideration of risk is one of the contradictions I alluded to above. Insurance is a risk-based business and we want to make it independent of risk. It's a lumpy system and we want it to be as smooth as a table top.

The world offers a giant natural experiment with differences in policies from Nation to Nation and sub-national unit to sub-national unit (states and provinces). Out of all of those natural experiments which comes closest to implementing your proposal?

If Professor Cochrane wants the United States to copy the Singapore or Hong Kong models then he should just say so. Singapore seems to have a much higher level of government regulation and public delivery of services than Professor Cochrane wants to see. It also seems that public pressure is leading to increasing public subsidies for health care in Singapore so while American libertarians may think the Singapore model is perfect, Singapore voters do not.

If Obamacare isn't a disaster in the ways you predict (and I have no idea whether or not it will be), will you acknowledge the failed prediction on your blog two or three years down the line? (The same question could be asked of course, of a certain NYT columnist who seems VERY certain that all the problems will be smoothed out once the website is fixed.)

Also this passage struck me as misleading, even if not necessarily false: 'The U.S. health-care market is dysfunctional. Obscure prices and $500 Band-Aids are legendary. The reason is simple: Health care and health insurance are strongly protected from competition.' Now you are correct of course that the US system isn't a free market, and its entirely possible that you're right that a more market based, liberalized system would outperform not only the status quo in the US but also the 'socialized' systems of Europe (which are actually quite diverse of course.) But insofar as things like $500 band aids are uniquely American problem, its misleading to imply that the only reason for this is that the US doesn't have a free market in health care, even if a free market in health care would fix the problem. Other developed countries don't have free market health care systems, but they don't have the sort of specific dysfunctions that the US system is infamous for in the rest of the developed world.

Oh and Finland has the best public schools in the world, or did until recently, and has virtually no private sector in education and the one that does exist is HEAVILY regulated.Not that I'm claiming that one caused the other or anything. I'd bet money you'd find another country with a large private share of the market relative to the developed world norms, and unusually good schools easily enough, given half an hours search.

Obamacare will not collapse. You underestimate the people who designed it. Remember that the idea came from the Heritage Foundation. Obama picked it up and implemented it. A similar program has been working quite well in Switzerland since 1995. It is not a liberal approach. It is a conservative solution to a serious problem. The real outrage is not the federal website, it is the Oregon exchange website. Oracle got the contract to build it. As far as I know not a single person has signed up for health care on the web in Oregon. Are Oracle programmers incompetent?

Well, looking at the comments, it seems there are a lot of very smart people speaking out. And with a lots of fancy business lingo that is a lot of hogwash.We had/have a "so called" competitive health care system. As a Retired RN, with more than 50 plus yrs in health care & most of that in the Operating Room & management, it simply does not work.You are constantly in competition with the "hospital down the street" , to get more Drs so you can get more pt volume. Dr's control both the admission to the hospital & all the outpatient tests , etc. done there.I can't tell you how many times a Dr. would demand that I buy some enormous expensive "toy", that was new to the market, and threaten to go down the street & take all his patients, unless I did so immediately. ( And actually has done so.)Many times medical products (Ie: orthopedic hips, knees, etc.) were purchased because of the relationship between the Dr & the sales person. And if that person changed companies, then the hospital had to change implants (or sutures, or whatever ) . Every time you did this, it was an extremely costly to purchase all the new tools that you had to have to use that implant. IE: Medical cost go out of sight!!That is just a little taste of what actually goes on. Hospitals, Dr's, Medical suppliers , compete every day, for every patient, procedure, drug & test. Guess what! It didn't work. I don't even need to tell you what insurance companies did. If they had met the need then we would not have 50 million people with out health care & the cost to those of us , with insurance, would not be so expensive, as it is today.So believe me. Your ideas will never work. & we need to go to a single payer system.

The problem with this analysis is the tunnel vision of the observer. It discusses how there is competition for doctors to use a certain hospital. More doctors = more admissions, tests, procedures = more money. The doctors demand special gadgets in exchange for bringing their patients to the hospital. The purchasing manager gets a headache.

Maybe it's because the doctor likes the sales rep, but I doubt it. Doctors want the equipment they are most comfortable with to get the job done. There is a lot of frustration sometimes because the equipment the hospital provides is not optimal for what you want to do. Sometimes hospitals will even re-use disposable items. Since reusables are not designed for repeated use or for going through sterilization there is potential for equipment failure and it can happen during a case. Maybe if the sales rep is sleeping with the doctor it could influence equipment selection but this is not the norm. If you want something that's very expensive the hospital will make a determination of what the return on that investment will be. If you bring in lots of money and want a $50,000 chair to sit in while you work, you got it (I'm not making this up). If you bring 2 cases per year, you can sit on the floor for all they care.

Therefore we have a glaring omission in the above analysis: the hospitals were not competing on price. They were competing for users who didn't have to pay for anything. The doctors weren't too concerned with cost. It didn't come out of their hide. The doctors brought in the patients, who did pay.

However, patients often don't shop prices because of insurance. All they care about is what their own out of pocket cost will be. I often hear, "I don't care what it costs, I've already met my deductible", or "I don't care how much that drug is. I have a $20 co-pay on everything". If they had to pay a percentage of the cost every time they received any treatment they'd worry about total cost.

I posted this on Sermo, an MD forum and they suggested to X-post here.

This OpEd comes straight out of the fantasy world of the libertarians, and it's so devoid of reality it's hard to know where to start.

Cochrane says: "Health insurance should be individual, portable across jobs, states and providers; lifelong and guaranteed-renewable ….payment plan for routine expenses."

Really? How's that going to happen? You pass ObamaCare and let people buy the Bronze plan. The law basically does exactly what he wants.

And this gem: "People want to buy this insurance, and companies want to sell it. It would be far cheaper, and would solve the pre-existing conditions problem. We do not have such health insurance only because it was regulated out of existence."

Cochrane thinks insurance companies don't cover pre-existing conditions because of government regulations? Ah, no. They deny coverage to maximize corporate profits and increase share price so the CEO can exercise stock options to buy that second vacation home on Martha's Vineyard. 'Cause it's expensive to write policies on folks who might get sick. So a law has to be passed that requires insurance companies to cover everyone, prohibits lifetime caps, and requires insurance companies must spend greater than 85% on providing care and not providing CEOs with more corporate jets.

He also parrots the old stance from conservatives on allowing insurance to cross state lines. In a fantasy world this works, in the real world it doesn't. Insurance companies will make a made mad dash to the state with the most lax and unregulated policies, just like credit card companied did in the '70s. Right now if you get screwed by your insurance company, you can at least complain to your state's insurance commission, and occasionally (very occasionally) you can get relief. WIth deregulation and cross state health insurance companies, you want to complain, you get to call some corporate headquarters in Rhode Island or South Dakota. Good luck with that.

Here's Cochrane's big idea on how to rope in escalating healthcare costs: "The U.S. health-care market is dysfunctional. Obscure prices and $500 Band-Aids are legendary. The reason is simple: Health care and health insurance are strongly protected from competition. There are explicit barriers to entry, for example the laws in many states that require a "certificate of need" before one can build a new hospital. Regulatory compliance costs, approvals, nonprofit status, restrictions on foreign doctors and nurses, limits on medical residencies, and many more barriers keep prices up and competitors out. Hospitals whose main clients are uncompetitive insurers and the government cannot innovate and provide efficient cash service."

He wants to allow any FMG to come to America and charge lower medical fees and this competition will make you lower your fee. That drives down healthcare costs. A drive to the bottom. So you can forget about driving that Lexus you were looking to buy. He also wants anyone who has the whim to open up a hospital where ever they want. So look for a Jiffy Lube/Cardiac Care hospital coming to a neighborhood near you. And those $500 Band-Aids have nothing to do with gov regulations or competition protection. They come from Cost Shifting for all those uninsured who use the ER as their primary medical provider, just like Romney suggested.

This article clearly shows Cochrane has no clue how to solve the problems of providing affordable quality healthcare in America. If he thinks that airlines companies or cell phone providers are the shining example that we should all strive to follow, then he hasn't flown coach with an extra checked bag anytime in the last decade, or tried to call customer service at Verison or AT&T.

This oped is disingenuous and must reflect a near total lack of exposure to how health care systems work. We will NEVER have a workable free market health care system that covers the poor and the sick. Period. No free market system will pay for healthcare for the poor and the sick. Does the author suggest that we should remove regulations that require hospitals and doctors to care for everyone that show up at the door without regard for their ability to pay? Should we place the impoverished sick in a ditch somewhere?

Healthcare, even for the well off, will always be expensive, and require "insurance." And the private sector will forever try to cherry pick there coverage plans for the healthy. All our lame attempts to push HMO's and insurance companies to cover the impoverished unhealthy poor will result in Byzantine efforts on their parts to avoid being responsible.If you have no money you cannot fly on Southwest, purchase a Mac computer, or even shop at Walmart.

"Right now if you get screwed by your insurance company, you can at least complain to your state's insurance commission, and occasionally (very occasionally) ..."

Pop common sense quiz: The most effective way to prevent companies from abusing its customers in *any* industry, jumbo jet travel to t-shirts, is toA) call the local government bureaucratB) get the word out on any abuse and insure competition from companies with a good record.

You have leukemia. You need chemo and a bone marrow transplant. Your insurance company says it won't pay because bone marrow transplants are experimental and they don't pay for experimental treatments, even though it's the standard of care for 20 years. The company says you can pay the $500,000 for the treatment.

You can:

A) Go to all your friends and loved ones and tell them not to buy insurance from this company, and maybe in 5 or 10 years with enough pressure from the public the company changes their policy, but it's too late for you because you're dead.

B) You go to the insurance commission and they know this is standard of care and the commission threatens to pull the company's permit to do business in the state unless they provide routine and basic coverages. Since the company doesn't want to be out of business, they relent and pay for the standard of care.

I would do the same that I would do if I were bullied by some thug every time I went out jogging in the neighborhood: call the "local government bureaucrat". That is the impersonal, efficient, desirable and not-dumb solution.

I read your op-ed with an open mind and sadly giggled: I’ve been expecting the whole health care system to collapse for the last 15 years. It has been the soufflé that wouldn’t fall. I should know as I am a surgeon interested in health policy and with family members difficult to insure including a 6 year old who needed open heart surgery at birth and recently diagnosed with a bleeding disorder and a daughter who sustained a traumatic brain injury. I have seen the good, the bad and the ugly from all perspectives: a health care provider (hate that term), a parent for otherwise uninsurable children, and as a policy wonk.The more I have studied healthcare, the more I appreciate the sagacity of our Founding Fathers in crafting the Constitution, a document that revels in understanding human nature and allowing flexibility. Healthcare needs its own Constitution, not a two thousand page document of micromanagement. If there is a principle of the “four corners of the law,” then a healthcare sandbox can certainly be created that takes into account human nature, market forces, and consumer protection.The parable of the fox and the scorpion, describes characters that cannot help their nature where the scorpion stings the fox as they swim together drowning both, applies to each stakeholder in healthcare. Each has a role to play but they cannot help being who they are. There are some well established truths:1. 20% of GDP to healthcare and climbing is unsustainable and has become a national security concern.2. The healthcare system is disorganized and inefficient3. Waste is rampant4. Fraud is rampant5. Each stakeholder whether insurer, hospital chain or doctor will try to suck as much money out of the system as they can—it is their, “responsibility to their shareholders”.6. Without EMTALA laws from the 1980’s, uninsured emergency cases would be carted between hospital to hospital as no one would (reasonably) accept the economic exposure of unreimbursed care without a mandate to do so.Here are some rarely recognized self evident readily provable facts:1. The more complex the surgical procedure, the less the doctor gets paida. Example—2 vessel heart bypass gets paid $1800 to the cardiac surgeon- yes that’s allb. I’ve been paid $5 for re-attaching arms so God Bless2. Hospitals get paid a flat rate (DRG) based on the diagnosis of the patient not the amount they bill. a. The $500 aspirin means nothing—it’s only a means on inflating stock valuation for Wall Street3. The model government one payer systems that are most successful involve homogenous populations with patients that follow instructions from their doctors such as Scandinavian countries and Germany. That isn’t the U.S.A!4. Model government systems have only a single electronic health record and pharmacy system.--Continued as next post

5. Privacy and Efficiency are natural enemies.6. The two free market situations in healthcare, cosmetic medicine and dentistry show that free market forces don’t necessarily reduce prices or improve quality. (I can explain another time). 7. Insurance that spreads risk over the largest number of people is the most effective.8. Pharmaceutical companies will be making much more money from the Chinese middle class consumer willing to pay cash for legacy brand name products they can rely on than from US consumers. 9. Group purchase power does matter.10. Healthcare is not a right per se, however it is good public policy like public education.11. Dysfunctional Healthcare is directly tied to our Dysfunctional Education and Agricultural system.12. Guess what?—those who can pay or are politically connected will always get more attention or service, it happened in Communist Russia and for Dick Cheney; it’s human nature. Get over it. Then what to do? 1. Identify the stakeholders: Patients, Insurors, Hospitals, Doctors, Pharmaceutical Companies, medical device and supply companies, and the Lawyers.2. Spread the insurance risk over the greatest number of people: the entire 330 million US population, but carve out the most ill and needy to Medicare or equivalent. (Medicaid is a joke—I do not know a single doc other than pediatricians and OB/GYN’s who accept it.)3. Have a base catastrophic plan for everyone, but not Medicaid.4. Have a single Electronic Health Record system, or make it so easy to integrate, like plugging in a USB cord, that it is seamless so we don’t have to wait in ridiculous lines for insurance confirmations, etc.5. Let insurers compete for value added services for those who can pay more. Use a single integrated electronic health network. Metadata for healthcare- as opposed to NSA use of your cellphone records (?-not sure yet) will be very helpful to determine best practices.6. The Government is the biggest Group Purchaser and there is a valid public need to keep all medically related pricing affordable. I had to purchase the blood medication for my kid for $600, when I could have bought the exact same med in Canada for $60..are you for real? There’s a dividing line somewhere between profit, greed and patriotism.7. Let Doctors compete and participate on insurances or not. Let the Consumer decide. A published for cash schedule is clear and simple, and more efficient for all. The relationship between Patient for reimbursement should be to the Insuror, not the Doctor.8. Patient must be more responsible to look after their own health. If you don’t keep your weight down or take your blood pressure meds whose fault is it? How to incentivize that I don’t know.9. Same with where we spend the most money in healthcare: Chronic diseases- obesity, diabetes; End of Life Care—95 year olds on a breathing machine cost a lot of money and don’t add much length or quality of life with dignity and cost a great deal of resources. (I can’t figure out the right, ethical choice, but we as a society have to face it), and Trauma. (And you thought Cancer was on the list-nope). We need to make a choice, and analyze the outcome and change it if it’s not right. Not making any choice is a pathetic.10. Create a separate Court system and administrative process for Healthcare; one exists for Worker’s Compensation and Tax issues. It can and should be done.I hope my attempt to make a balanced presentation has not met deaf ears. Now is the time to shed the speaking points for Meet the Press and work for a consensus before the USA becomes a second rate power.

I'm thoroughly confused, and I say this as an MBA with a 30 year career in business. Obamacare is essentially Romneycare which is based on free market principles. The only way I can think of insuring everyone is to make it mandatory for everyone to be in the system. Texas does this for auto insurance, and it had a significant impact. Further, republicans, towards whom I'd naturally lean, have been paralyzed by the fact that Obama might have a success and did not work with him. They've lost a lot of credibility and certainly demonstrated to me their concern for scoring points over governing and concern for the larger citizenry. It's too late now. This program is in, and will stay in. Whatever faults this program has, I support it because I know of no other viable alternative being proposed.

Thanks to a few abusers I am now moderating comments. I welcome thoughtful disagreement. I will block comments with insulting or abusive language. I'm also blocking totally inane comments. Try to make some sense. I am much more likely to allow critical comments if you have the honesty and courage to use your real name.

About Me and This Blog

This is a blog of news, views, and commentary, from a humorous free-market point of view. After one too many rants at the dinner table, my kids called me "the grumpy economist," and hence this blog and its title.
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!